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3232Clean Water Act Section 401: Balancing States’ Rights and the Nation’s Need for Energy Infrastructurehttps://www.pipelinelaw.com/2019/04/29/clean-water-act-section-401-balancing-states-rights-and-the-nations-need-for-energy-infrastructure/
Mon, 29 Apr 2019 18:59:08 +0000https://www.pipelinelaw.com/?p=2704Over the past several decades, significant tension has developed between the federal role in overseeing and authorizing certain types of energy infrastructure projects and states’ roles in regulating water quality under the cooperative federalism structure of the Clean Water Act (CWA or the Act). This tension has played itself out in various contexts, but the...

Continue Reading]]>Over the past several decades, significant tension has developed between the federal role in overseeing and authorizing certain types of energy infrastructure projects and states’ roles in regulating water quality under the cooperative federalism structure of the Clean Water Act (CWA or the Act). This tension has played itself out in various contexts, but the most pronounced in recent years has been the battle over CWA Section 401 water quality certifications for energy infrastructure projects, in particular interstate natural gas pipelines.

Continue Reading]]>Last week the Federal Energy Regulatory Commission (FERC) made some headway in how it evaluates greenhouse gas (GHG) emissions from natural gas-related projects. In recent FERC pipeline certification proceedings, the two Democrats on the Commission have been critical of how FERC addresses a project’s potential GHG emissions and climate change impacts. With only four active commissioners, this dispute has made it difficult to obtain the majority needed for FERC approval. In last week’s order, however, the two Republicans were joined by Commissioner Cheryl LaFleur, a vocal critic of the Commission’s approach, in authorizing a new liquefied natural gas (LNG) export terminal and associated natural gas pipeline in Louisiana. The commissioners were able to persuade LaFleur to issue a concurring opinion by expanding the environmental analysis of GHG emissions. This suggests that FERC’s commissioners may have found some new common ground that could serve as a model for the evaluation of future projects.

The project at issue involved the construction and operation of an LNG export terminal and associated facilities along the Calcasieu Ship Channel in Cameron Parish, Louisiana. FERC’s National Environmental Policy Act (NEPA) analysis evaluated the annual direct GHG emissions from the terminal’s construction and operation and compared them to national GHG emissions data compiled by the US Environmental Protection Agency (EPA). According to this analysis, the project would emit nearly 4 million tons of GHGs annually, potentially increasing national CO2 emissions by 0.07 percent. Due to the pending repeal of EPA’s Clean Power Plan and the pending withdrawal from the Paris climate accord, FERC noted that there are currently no national emissions targets to use as a benchmark for the project. The environmental analysis acknowledged that the construction and operation of the project would contribute incrementally to climate change, but concluded that FERC could not determine whether such a contribution would be significant. Ultimately, because it found that the project would be in the public interest, FERC approved the LNG terminal.

Commissioner LaFleur’s concurring opinion first notes the Natural Gas Act (NGA) provides the US Department of Energy (DOE) with exclusive authority over the export of natural gas, including the responsibility to consider whether the exportation is in the public interest. In terms of its environmental review, Commissioner LaFleur states that DOE, rather than FERC, has the responsibility to assess indirect impacts of LNG exports, but FERC must still satisfy its obligations under NEPA. Within that context, LaFleur expressed her appreciation for disclosing the direct GHG emissions of the project and for comparing them to national levels. Yet, she was critical of the Commission for not making a significance determination, stating “The magnitude of the direct GHG emissions from the Calcasieu Pass Project certainly appear to be significant, as contemplated by NEPA [but] the Commission has not identified a framework for making a significance determination.” LaFleur called on FERC to use the Social Cost of Carbon, which assigns a dollar amount to each ton of CO2 emissions, to assess the significance of the climate change impacts. Thus, while Commissioner LaFleur ultimately approved the project, she did so recognizing that FERC’s LNG export responsibilities are different than its responsibilities for pipelines and encouraged the Commission to adopt a framework to make a significance determination.

Commissioner Richard Glick was the lone dissenter. He repeated his past arguments that the Commission’s public interest determination must include an assessment of a project’s impact on climate change. “Neither the NGA nor NEPA permit the Commission to assume away the climate change implications of constructing and operating an LNG facility.” While Glick found that quantifying the project’s GHG emissions is a “necessary step” toward meeting FERC’s NEPA requirements, he argued that simply counting the volume of emissions is insufficient. Glick also echoed LaFleur’s recommendation to monetize the harms of climate change by using the Social Cost of Carbon, concluding that a rigorous examination of a project’s impacts on climate change would reduce the legal risk on appeal.

FERC’s approach of calculating and disclosing potential GHG emissions and then comparing those totals to state, regional and/or national climate change goals may serve as a model for FERC’s environmental analysis going forward. For some interstate natural gas pipeline projects the DC Circuit has upheld a similar approach. For example, as recently as February 19, 2019, the DC Circuit dismissed claims that FERC failed to adequately consider the downstream climate impacts of the Mountain Valley Pipeline, noting that “FERC provided an estimate of the upper bound of emissions resulting from end-use combustion….” Given DOE’s substantial role in approving LNG terminals, however, it remains to be seen whether Commissioner LaFleur will concur with similar environmental analyses of GHG emissions in the context of interstate natural gas pipeline projects.

]]>UPDATE: During Oral Argument, DC Circuit Suggests Waiver Period for State Water Quality Certification May Be Less Than One Yearhttps://www.pipelinelaw.com/2019/01/31/update-during-oral-argument-dc-circuit-suggests-waiver-period-for-state-water-quality-certification-may-be-less-than-one-year/
Thu, 31 Jan 2019 19:10:57 +0000https://www.pipelinelaw.com/?p=2674On Friday, a court ruling provided some clarity regarding the Clean Water Act (CWA) § 401 water quality certification process. As forecasted in our November 1, 2018 blog post (below), the US Court of Appeals for the DC Circuit has ruled that a state waives its CWA § 401 authority when, pursuant to a written agreement, an...

Continue Reading]]>On Friday, a court ruling provided some clarity regarding the Clean Water Act (CWA) § 401 water quality certification process. As forecasted in our November 1, 2018 blog post (below), the US Court of Appeals for the DC Circuit has ruled that a state waives its CWA § 401 authority when, pursuant to a written agreement, an applicant repeatedly withdraws and resubmits its request for water quality certification in order to restart the one-year waiver clock. Hoopa Valley Tribe v. FERC, No. 14-1271 (D.C. Cir. Jan. 25, 2019). According to the Court’s opinion, this sort of arrangement serves to circumvent the Federal Energy Regulatory Commission’s (FERC) “congressionally granted authority over the licensing, conditioning, and developing of [the] project,” and “if allowed, the withdrawal-and-resubmission scheme could be used to indefinitely delay federal licensing proceedings and undermine FERC’s jurisdiction to regulate such matters.”

The Court’s strict adherence to the one-year deadline has significant implications for both the hydroelectric and interstate natural gas pipeline industries. For example, over 15 other hydroelectric projects have been delayed by pending water quality certifications, with an average delay over seven years. This decision could provide the impetus to resolve such delays. Furthermore, the Court addresses one of the key issues that arises in disputes over the development of interstate natural gas pipelines. Ambiguity over when the statutory one-year deadline begins and ends, and whether withdrawal and resubmission of a request restarts the clock, has caused substantial delays. [1] Such delays have produced significant capacity constraints across the northeast, causing natural gas prices to skyrocket during cold spells.[2] For example, on January 18, 2019, a large utility announced a moratorium on new natural gas connections in parts of Westchester County, NY.[3] The Hoopa Valley decision, however, makes clear for the first time that a scheme to withdraw and resubmit the same request over an extended period of time constitutes waiver. Moreover, the court clarifies that “while a full year is the absolute maximum, it does not preclude a finding of waiver prior to the passage of a full year.”

Such statements suggest a potential reversal in the ongoing controversy over the New York Department of Environmental Conservation’s (NYDEC) April 2016 denial of water quality certification for the Constitution Pipeline. After unsuccessful challenges in various venues, Constitution petitioned the DC Circuit for review of FERC’s finding that NYDEC did not waive its CWA § 401 authority. In November 2018, in response to FERC’s motion, the DC Circuit agreed to hold the Constitution case in abeyance until it reached a decision in Hoopa Valley “because it raises common questions of law.” While the facts between the two cases are somewhat different—in Hoopa Valley the certification was delayed by more than a decade subject to a written agreement to withdraw and resubmit the same request year after year, whereas Constitution agreed to withdraw and resubmit its request twice, between August 2013 and April 2016, to provide NYDEC with additional time to reach a final determination—by granting FERC’s request to hold the case in abeyance, the DC Circuit, at a minimum, recognized the legal similarity between the two cases. If the Court determines that the same legal rationale should apply to Constitution’s facts, then we are likely to see a similar outcome and a finding that NYDEC waived its authority.

[2]See Benjamin Storrow, Cold snap reignites debate over future of New England grid, E&E News (Jan. 11, 2018) (In January 2018, during a cold snap, “New England’s spot [natural gas] prices registered as the most expensive in the world [prompting] power plant owners to idle their natural-gas fired workhorses… in favor of their seldom-used oil units.”). These high prices were primarily caused by insufficient natural gas pipeline and storage capacity. In response to natural gas constraints in New England, states were forced to purchase imported liquefied natural gas (LNG) from Russia. See Anna Mikulska, Delivery Of Russian LNG Heats Up Discussion About U.S. Energy Dominance And Sanctions, Forbes.com (Feb. 6, 2018).

]]>During Oral Argument, D.C. Circuit Suggests Waiver Period for State Water Quality Certification May Be Less Than One Yearhttps://www.pipelinelaw.com/2018/11/01/oral-argument-d-c-circuit-suggests-waiver-period-state-water-quality-certification-may-less-one-year/
Thu, 01 Nov 2018 20:18:36 +0000https://www.pipelinelaw.com/?p=2625In recent litigation involving the development of interstate natural gas pipelines, one of the key issues has been whether the state has waived its authority under Clean Water Act section 401 by exceeding the one-year time period. In a separate case involving a series of hydroelectric facilities, the waiver period was again directly at issue. On October 1, at oral argument before the D.C. Circuit, the parties addressed whether California and Oregon had waived their water quality certification authority by having the applicant withdraw and resubmit its request for certification over a number of years. Notably, the judges seemed to agree that FERC could make a waiver determination before the end of the one-year time limit and that withdrawing and resubmitting an application may not always restart the clock.

In recent litigation involving the development of interstate natural gas pipelines, one of the key issues has been whether the state has waived its authority under Clean Water Act (CWA) section 401 by exceeding the one-year time period.[1] In a separate case involving a series of hydroelectric facilities, the waiver period was again directly at issue. On October 1, at oral argument before the U.S. Court of Appeals for the D.C. Circuit, the parties addressed whether California and Oregon had waived their water quality certification authority by having the applicant withdraw and resubmit its request for certification over a number of years. Notably, the judges seemed to agree that the Federal Energy Regulatory Commission (FERC) could make a waiver determination before the end of the one-year time limit and that withdrawing and resubmitting an application may not always restart the clock.

The case, Hoopa Valley Tribe v. FERC, No. 14-1271 (D.C. Cir. 2018), involves a dispute over the operation of the Klamath Hydroelectric Project (KHP), a series of dams and reservoirs on both sides of the California-Oregon border. The project obtained its original 50-year operating license in the 1950s. Set to expire in 2006, PacifiCorp (KHP’s operator) submitted its relicense application to FERC in 2004. In 2007, FERC completed its environmental review and concluded that a new license would likely need to incorporate costly fish passage requirements for the protection of local salmon species. In 2010, PacifiCorp negotiated and signed an agreement with 48 interested parties (e.g., the Governors of Oregon and California, local tribes and counties, farmers, conservation groups, etc.) to decommission and remove the dams by 2020. As part of the agreement, PacifiCorp agreed to withdraw and resubmit its CWA section 401 requests every year to avoid waiver.

In 2012, the Hoopa Valley Tribe petitioned FERC for a declaratory order that California and Oregon had waived their 401 authority, and argued that FERC had violated its statutory duties for failing to act on the KHP relicense application. FERC found that, while the circumstances are “far from ideal,” PacifiCorp’s withdrawals and re-submission of its requests for certification (from 2008-2014) restarted the one-year deadline each year.[2] Hoopa Valley appealed FERC’s determination to the D.C. Circuit.

Under the CWA, a state waives its authority if the agency “fails or refuses to act on a request for certification, within a reasonable period of time (which shall not exceed one year) after receipt of such request.” 33 U.S.C. § 1341(a)(1) (emphasis added). During oral argument, the attorney for the Hoopa Valley Tribe argued that FERC had misinterpreted the CWA by finding that it must wait a full year before determining whether a state has waived its authority. One of the issues raised by the judges was whether FERC regulations had already defined a “reasonable period of time” as one year. FERC regulations state “[a] certifying agency is deemed to have waived … if the certifying agency has not denied or granted certification by one year after the date the certifying agency received a written request for certification.” 18 C.F.R. § 4.34(b)(5)(iii). The attorney responded by stating that he does not read this regulation to preclude FERC from making a determination that the state has not acted within a reasonable period of time and that waiver has occurred before the one year is up.

FERC’s attorney argued that the Commission interprets the CWA and its own regulations to provide states with the maximum of one year because it provides early certainty to all parties as to what will be considered reasonable. In a quick back and forth with Judge Pillard, the attorney cited the Second Circuit’s Millennium Pipeline decision to support the notion that California and Oregon acted appropriately in requesting that PacifiCorp withdraw and resubmit its request for certification. In that case, in response to New York’s concern that a strict one-year period would require premature decisions by state agencies, the Second Circuit explained that the state agency could deny the application without prejudice or “request that the applicant withdraw and resubmit the application.” Judge Pillard correctly noted that this language is dictum and that the issue of whether a state and applicant can agree to annually withdraw and resubmit its request for certification to avoid waiver was not squarely before the Second Circuit. Judge Pillard also expressed skepticism that the statute allows an applicant to restart the one-year clock by withdrawing and resubmitting a request. The statute, Judge Pillard noted, provides that waiver occurs if the state does not act within an appropriate period of time after receipt of such request, and the original request “has not changed.”

Significantly, Judge Sentelle made the point that the language of section 401 implies that the licensing agency has the authority to deem a time period unreasonable or “find its effect” unreasonable and find waiver before the one-year clock runs out. In response, the FERC attorney pointed to an EPA regulation providing that the licensing or permitting agency determines what is reasonable, see 40 C.F.R. § 121.16(b), and that if FERC started to make determinations case by case it would create uncertainty. Judge Sentelle responded by stating that agencies apply the term “reasonable” all the time to the facts of a particular case, and FERC should have no difficulty doing so here.

The judges’ criticism of FERC’s strict adherence to the one-year deadline, and their implication that the statute allows FERC to make a waiver determination before the end of the one-year period, suggests that we are likely to see the judges take a similar position in the forthcoming opinion. According to recent statistics,[3] the D.C. Circuit, on average, issues an opinion approximately three months after oral argument. Thus, the Court is likely to issue its opinion at the end of the calendar year.

]]>Second Circuit Affirms Waiver Period for State Water Quality Certification Begins Upon Receipt of Request for Certificationhttps://www.pipelinelaw.com/2018/03/16/second-circuit-affirms-waiver-period-for-state-water-quality-certification-begins-upon-receipt-of-request-for-certification/
Fri, 16 Mar 2018 19:12:56 +0000https://www.pipelinelaw.com/?p=2530On March 12, 2018, the United States Court of Appeals for the Second Circuit affirmed a Federal Energy Regulatory Commission (FERC) order finding that delays by the New York Department of Environmental Conservation (NYDEC) in reviewing Millennium Pipeline Company’s application for water quality certification constituted waiver of NYDEC’s authority under the Clean Water Act (CWA)....

Continue Reading]]>On March 12, 2018, the United States Court of Appeals for the Second Circuit affirmed a Federal Energy Regulatory Commission (FERC) order finding that delays by the New York Department of Environmental Conservation (NYDEC) in reviewing Millennium Pipeline Company’s application for water quality certification constituted waiver of NYDEC’s authority under the Clean Water Act (CWA). As we detailed in an earlier blog post, FERC found that NYDEC’s delay exceeded the one-year statutory period established by CWA Section 401. The Millennium case is just one of several interstate natural gas pipeline projects that have faced delays associated with the CWA Section 401 permitting process. (See, e.g., Atlantic Bridge Project, Atlantic Sunrise Project, Constitution Pipeline, Northern Access Project, PennEast Pipeline, and Spire STL Pipeline.) The Court’s decision resolves the nearly three-year permitting process for the Millennium Valley Lateral Pipeline and clarifies for other projects (and state agencies reviewing those projects) that the one-year waiver period begins when the state agency receives the initial request for certification.

Pursuant to the Natural Gas Act (NGA), FERC has regulatory jurisdiction over interstate natural gas pipelines, and when construction of a pipeline involves discharges into waters of the US the project is also subject to the requirements of CWA Section 401 and must obtain water quality certification from the appropriate state agency that construction will not violate state water quality standards. 33 U.S.C. § 1341(a)(1). Under the CWA, the state agency waives its certification authority if the agency fails to act on a request within a reasonable period of time, not to exceed one year. Id. Despite the plain language of the statute, states have in the past crafted state-specific standards for what constitutes a “request” for certification sufficient to start the one-year statutory period.

Millennium’s lengthy permitting process, described in detail here , culminated in a FERC order on September 15, 2017, which concluded NYDEC’s 21-month delay constituted waiver of the agency’s authority under CWA Section 401. NYDEC sought review of FERC’s order at the Second Circuit. NYDEC and its allies made the following three arguments:

NYDEC should receive Chevron deference for its interpretation as to what constitutes a valid “request” triggering the one-year, statutory waiver period.

The review process under Section 401 begins only after the agency deems an application “complete.”

FERC does not have jurisdiction over the 8-mile long lateral pipeline because it is located entirely within New York.

In response to whether NYDEC should receive deference, the Court found that “[a] state agency’s interpretation of a federal statute does not receive deference unless the federal agency charged with administering that statute has expressly approved the state’s interpretation.” Since EPA is charged with administering the CWA and was not involved in approving NYDEC’s interpretation, NYDEC did not receive deference. Similarly, however, “given that FERC is not charged in any manner with administering the [CWA],” AES Sparrows Point LNG, LLC v. Wilson, 589 F.3d 721, 730 (4th Cir. 2009); see also Alabama Rivers Alliance v. FERC, 325 F.3d 290, 297 (D.C. Cir. 2003), the Court also found it would not defer to FERC’s interpretation and would review Section 401 de novo.

In response to NYDEC’s argument that the waiver period begins only after NYDEC deems an application “complete,” the Court found that the plain language of the statute establishes a bright-line rule. “[T]he timeline for a state’s action regarding a request for certification ‘shall not exceed one year’ after ‘receipt of such request.’” Without this bright line, the Court suggested states could apply a subjective standard and theoretically request supplemental information indefinitely. Still, the Court recognized that a state has the authority to simply deny the application without prejudice or request that the applicant withdraw and resubmit its application. Because NYDEC failed to act within one-year after receipt of Millennium’s initial request for certification, the Second Circuit held that NYDEC had thus waived its certification authority.

The Court also found that FERC has jurisdiction over the project, even though it is entirely located in one state. Although the NGA provides FERC with authority over the transportation of natural gas in interstate commerce, the Court reasoned that if a pipeline is an integrated part of an interstate system, then FERC has jurisdiction. Since the Millennium pipeline would transport out-of-state gas from the Millennium mainline to the Valley Energy Center it was deemed to be part of an integrated system transporting gas in interstate commerce.

The Second Circuit’s decision makes clear that the initial request for water quality certification triggers the one-year waiver period, whether or not the state agency deems the application complete. While this clear time period for review may lead to more state 401 denials without prejudice where the state agency believes it lacks necessary information or believes it does not have enough time to prepare a reasoned decision, it will also likely encourage state agencies to move more quickly to meet the one-year deadline.

]]>D.C. Circuit Raises the Stakes: NEPA Defect Sufficient to Halt Pipeline Operationshttps://www.pipelinelaw.com/2018/02/08/d-c-circuit-raises-the-stakes-nepa-defect-sufficient-to-halt-pipeline-operations/
Thu, 08 Feb 2018 22:05:41 +0000https://www.pipelinelaw.com/?p=1940Federal agencies that authorize or permit large infrastructure projects, like interstate natural gas pipelines, are often subject to the requirements of the National Environmental Policy Act, and environmental organizations frequently rely on NEPA to challenge a project. The D.C. Circuit recently struck down a decision by the Federal Energy Regulatory Commission to approve the construction and operation of three interstate natural gas pipelines because the Court found defects in FERC’s NEPA analysis. The court’s decision to vacate FERC’s authorization now threatens to shut down the pipelines, including the Sabal Trail pipeline currently supplying natural gas to newly constructed power plants in Florida.

Continue Reading]]>Federal agencies that authorize or permit large infrastructure projects, like interstate natural gas pipelines, are often subject to the requirements of the National Environmental Policy Act (NEPA), and environmental organizations frequently rely on NEPA to challenge a project. The D.C. Circuit recently struck down a decision by the Federal Energy Regulatory Commission (FERC) to approve the construction and operation of three interstate natural gas pipelines because the Court found defects in FERC’s NEPA analysis. The court’s decision to vacate FERC’s authorization now threatens to shut down the pipelines, including the Sabal Trail pipeline currently supplying natural gas to newly constructed power plants in Florida.

]]>FERC to Review Natural Gas Pipeline Certification Policies in the New Yearhttps://www.pipelinelaw.com/2018/01/12/ferc-review-natural-gas-pipeline-certification-policies-new-year/
Fri, 12 Jan 2018 21:20:15 +0000https://www.pipelinelaw.com/?p=1895The Federal Energy Regulatory Commission (FERC or the Commission) announced last month that it will review its policies governing the certification process for natural gas pipelines. The announcement was made by FERC Chairman Kevin J. McIntyre on December 21, 2017, in fulfillment of a pledge that he made during his Senate confirmation hearing in September...

Continue Reading]]>The Federal Energy Regulatory Commission (FERC or the Commission) announced last month that it will review its policies governing the certification process for natural gas pipelines. The announcement was made by FERC Chairman Kevin J. McIntyre on December 21, 2017, in fulfillment of a pledge that he made during his Senate confirmation hearing in September 2017. The format and scope of the review are still being determined.

FERC’s review will focus on its Policy Statement on Certification of New Interstate Natural Gas Pipeline Facilities. When it was issued in 1999, the Policy Statement was intended to provide guidance on how FERC evaluates proposals for certificating new pipeline construction. Under the federal Natural Gas Act (15 U.S.C. § 717 et seq.), any proposed interstate natural gas pipeline construction or expansion project may proceed only upon certification by FERC that it is “required by the present or future public convenience and necessity.” 15 U.S.C. § 717f(c). The Policy Statement details how FERC analyzes the two principal criteria used to make this determination, namely:

Whether a proposed pipeline project is financially supported without relying on subsidization from existing customers; and

Whether the balancing of any adverse effects of the proposed project against the public benefit supports a finding that it is in the public convenience and necessity.

This announcement of FERC’s decision to review its pipeline approval policies follows on the heels of dissents issued by Commissioner Cheryl LaFleur to recent orders on natural gas pipeline projects criticizing the FERC’s review process. In the words of McIntyre, the review is to be “thorough,” will “take a fresh look” at current policy, and will involve ample opportunities for stakeholder input. Industry groups have already issued statements in support of the policy review.

FERC’s published statement announcing the review quotes Commissioner McIntyre as stating that “much has changed” since the current FERC policy was issued in 1999. Indeed, the past two decades have seen significant expansion in pipeline capacity to accommodate increased production and demand, as well as more active stakeholder participation in pipeline siting and certification decisions. Stakeholders are likely to use the review process as an opportunity to express their views on the need for more pipeline capacity, the possibility of overbuild in certain areas of the country, and the manner in which environmental and landowner impacts are evaluated in the certification process. We will provide updates on any announcements by FERC on the timing of the review and the solicitation of stakeholder comments.

]]>House Bill Reflects Ongoing Resistance to New Pipeline Constructionhttps://www.pipelinelaw.com/2016/07/12/house-bill-reflects-ongoing-resistance-to-new-pipeline-construction/
Tue, 12 Jul 2016 16:23:46 +0000https://www.pipelinelaw.com/?p=1630Recently proposed legislation in the U.S. House of Representatives would require FERC to revise its review process for proposed natural gas pipeline expansion projects to include additional analysis of cumulative impacts in a single region or State and extended environmental monitoring. While this bill is unlikely to gain traction in the Republican-controlled House, it is indicative...

Continue Reading]]>Recently proposed legislation in the U.S. House of Representatives would require FERC to revise its review process for proposed natural gas pipeline expansion projects to include additional analysis of cumulative impacts in a single region or State and extended environmental monitoring. While this bill is unlikely to gain traction in the Republican-controlled House, it is indicative of an ongoing debate about the need for and environmental impacts of new pipeline construction, and the role of both federal and state regulators in reviewing and approving such projects—a debate that has attracted national attention in the wake of the Obama administration’s rejection of the Keystone XL project in late 2015.

The bill, proposed by Representative Bonnie Watson Coleman (D-NJ) as the” Safe and Accountable Federal Energy Review Pipelines Act of 2016,” would require that the existing FERC certificate process include, among other things:

An evidentiary hearing on any contested issue of need or a cumulative review of planned infrastructure projects in a region, reviewing their necessity and impact relative to each other;

In conjunction with current National Environmental Policy Act (NEPA) requirements for Environmental Impact Statements (EIS) preparation, an analysis of the cumulative impacts of other interstate natural gas pipeline projects located within the same state, as well as projects within 100 miles, that are approved or in the FERC pre-filing process within the same year or before the issuance of the draft EIS; and

Monitoring of approved projects for five years to ensure agreed upon environmental mitigation steps have been fully implemented.

Pursuant to existing law, FERC already (1) conducts extensive public meetings and considers all written comments in determining whether to issue a certificate of public convenience and necessity; (2) reviews and analyzes whether there is a demonstrated commercial need for a proposed project and evaluates alternatives; and (3) conducts comprehensive environmental (and other) monitoring of certificated projects to ensure compliance with a certificate conditions.

State-level politicians and regulators have made similar efforts recently to control, slow, or restrict the expansion of pipeline infrastructure within their jurisdictions. In Georgia, for example, the State legislature passed a temporary moratorium on permit issuance and the exercise of eminent domain for new liquid pipeline construction while a State committee examines impacts associated with pipeline siting, construction, and operation. Meanwhile, the New York Attorney General has repeatedly expressed his opposition to the FERC-certificated Constitution Pipeline project, prompting the New York environmental protection agency to deny the project’s application for a water quality certification under the Clean Water Act (effectively stopping the project until litigation over this denial has concluded). In addition, the Massachusetts Senate recently approved two anti-pipeline bills, one that would prevent electric utilities from billing ratepayers to pay for gas pipeline expansions that would serve gas-fired power plants and another that would prohibit construction of new pipelines within 1,000 feet of a residential neighborhood, school, or senior center.

These efforts stand in stark contrast to existing federal laws that are intended to facilitate natural gas pipeline construction. The Energy Policy Act of 2005, for example, made several amendments to the federal Natural Gas Act to expedite approvals for natural gas projects—including designating FERC as the lead agency for coordinating federal approvals and NEPA compliance, requiring FERC to establish a schedule to ensure “expeditious completion” of all federal authorizations, and providing for streamlined reviews of any state or federal agency authorizations issued or withheld for natural gas projects in the federal Circuit Courts of Appeals. 15 U.S.C. §§ 717n; 717r. The Fixing America’s Surface Transportation (FAST) Act, which became law in December 2015, similarly creates a mechanism for coordinated environmental review and permitting of certain energy projects in accordance with deadlines and a timetable set by a lead agency.

Transportation of oil and natural gas by pipeline continues to be the safest mode of transportation as compared to truck, rail, and barge. Further, the Energy Information Administration estimates that oil and natural gas will supply 60% of U.S. energy needs by 2040. FERC has commented on existing capacity constraints, including in New England, New York and the Mid Atlantic. Opposition to new pipeline construction threatens the ability of planned projects to lessen these constraints and safely transport U.S. supply to consumers.

Continue Reading]]>In light of anticipated increases in operator compliance costs associated with PHMSA safety initiatives, FERC is issuing a Proposed Policy Statement for public comment that would allow interstate natural gas pipelines to use cost recovery mechanisms, such as surcharges or cost trackers, to recoup expenditures related to improved safety, reliability, and regulatory compliance. Comments on this proposed change will be due within 30 days of the proposal’s publication in the Federal Register, with reply comments due 20 days later (thus initial comments will be due afterJanuary 3, 2015).

As background to this proposed policy, the Commission mentions the following PHMSA natural gas pipeline safety initiatives: proposed expansion of IMP regulations, possible automatic shut off valves on new construction, confirmation of MAOP and the draft Integrity Verification Process, and cast iron replacement program. It also discusses recent EPA initiatives signaling a likely increase in the regulation of natural gas production and transportation-related emissions. As examples, FERC cites EPA’s white paper on emission reduction from natural gas compressors and its 2009 greenhouse gas reporting rule.

According to FERC, in light of these PHMSA and EPA regulatory initiatives, gas pipeline operators “will soon face new safety standards requiring significant capital cost expenditures to enhance safety and reliability,” as well as “increased environmental monitoring and compliance costs.” Proposed Policy Statement at 9. The purpose of the Proposed Policy Statement is to ensure that FERC ratemaking policies do not unnecessarily inhibit the ability of gas pipelines to make needed or required upgrades and improvements. Id. To this end, the Policy would allow gas pipeline operators to recoup costs incurred in modernizing their systems through shipper surcharges, subject to certain conditions “intended to ensure that the resulting rates are just and reasonable” and to “protect natural gas consumers from excessive costs.” Id. In addition, under the new Policy, only costs related to improvements made in response to increased safety and environmental regulation are eligible for cost recovery. Pipelines must therefore show that costs to be recovered are not ordinary capital investments related to routine maintenance. Id.

The Policy Statement is an outgrowth of the Commission’s recent decision in Columbia Gas Transmission, LLC, 142 FERC ¶ 61,062 (2013). In Columbia Gas, FERC approved a rate settlement designed to allow the operator to address safety and reliability issues in its aging pipeline system (according to the Order, 73% of Columbia’s DOT-regulated pipelines and 55% of its regulated compressor units were installed prior to 1970). The unique features of the settlement persuaded FERC that it was “just and reasonable” and provided a blueprint for FERC’s analysis of cost recovery mechanisms under the Proposed Policy. Under this analysis, an operator’s cost recovery proposal must satisfy five elements to be approved: (1) rates must have been recently reviewed; (2) limit eligible costs to one-time capital costs incurred for system modifications to comply with PHMSA, EPA, or other government agency regulations; (3) design the surcharge to protect captive customers from cost shifts if the pipeline loses customers or has to offer increased discounts to retain business; (4) include a method for periodic review of whether the surcharge and base rates remain just and reasonable; and (5) collaborate with shippers to seek their support for any surcharge proposal.

]]>FERC Proposes Rule to Improve Coordination of Natural Gas and Electricity Marketshttps://www.pipelinelaw.com/2014/04/01/ferc-proposes-rule-improve-coordination-natural-gas-electricity-markets/
Tue, 01 Apr 2014 16:01:57 +0000http://www.pipelinelaw.com/?p=1161Several cold weather events in the last few years have highlighted the interrelationship between natural gas and electric markets and underscored the need for improvements in coordination across those industries.

Continue Reading]]>Several cold weather events in the last few years have highlighted the interrelationship between natural gas and electric markets and underscored the need for improvements in coordination across those industries. In an attempt to address what one Commissioner described as “the defining issue” facing FERC over the next few years, the Commission recently proposed revisions to its regulations intended to increase coordination between interstate natural gas pipelines and the electric industry. The Notice of Proposed Rulemaking describes the challenges faced by both sectors due to their divergent scheduling practices, which can create reliability concerns especially during times of peak energy demand. It also proposes scheduling changes to address these challenges.

FERC currently incorporates the standards set by the North American Energy Standards Board (NAESB) for scheduling the transportation service of interstate gas pipelines at 18 CFR Part 248.12. At the same time, the Commission has accepted variation in regional electric scheduling practices. The differences between these scheduling timelines can create various coordination issues. First, the industries maintain different operating days, such that gas-fired generators must schedule transportation across two natural gas operating days to meet their needs during a single electric operating day. This, coupled with the fact that generators are confined by rigid intra-day nomination cycles within an electric operating day, creates the potential for gas-fired generators to deplete their available gas supply for the day during the morning peak period. Second, the timeframe for nominating gas pipeline transportation service does not align with the timeframe in which electric power generators receive bid confirmations to provide service in a given day. For that reason, gas-fired generators must make gas purchase arrangements and submit nomination requests before they know if they will be dispatched by their regional transmission organization or independent system operator. Generators are also unable to take advantage of periods in the daily nomination cycle when the market for transportation capacity is most liquid. In times of the year where pipeline capacity is constrained, this lack of flexibility in arranging gas transportation may threaten generators’ ability to provide reliable service.

To address these problems, the NOPR proposes to amend 18 CFR 248.12 as follows: 1) start the natural gas operating day earlier to ensure that gas-fired generators are not running short on gas supplies during the morning electric ramp periods; 2) move the first day-ahead gas nomination opportunity for pipeline scheduling to a later time, in order to allow electric utilities to finalize their scheduling before gas-fired generators must submit their nominations to the pipelines; and 3) modify the current intraday nomination timeline to provide greater flexibility to all pipeline shippers by creating four intraday nomination cycles rather than the existing two.

The NOPR and two related FERC orders (one available here, and the other here, were presented at an Open Meeting on March 20, 2014. While the Commissioners approved the NOPR in a 3-1 vote, one Commissioner expressed concern about the disproportionate burdens that the proposed scheduling adjustments may place on the natural gas industry. He also encouraged his fellow commissioners to “keep an open mind” about the proposed changes in the NOPR and emphasized that the industries may be in the best position to assess potential solutions to the coordination problem. Because a final rule adopting the proposed amendments would change the NAESB standards, the NOPR requests that the industries respond within 180 days by filing consensus standards developed through the NAESB process that are “consistent with” the NOPR or a notice indicating that the industries are unable to reach consensus. Comments on the NOPR, as well as on any consensus standards filed by NAESB within the 180-day period, are due within 240 days of publication of the NOPR.